Indian economy has been witnessing a phenomenal growth since the last decade.

The country is still

holding its ground in the midst of the current global financial crisis.

Quarterly gross domestic product (GDP) at factor cost at constant (1999-2000) prices for Q3 of 2008-09 is
estimated at US$ 171.24 billion, as against US$ 162.57 billion in Q3 of 2007-08, showing a growth rate of
5.3 per cent over the corresponding quarter of previous year.

Despite the global slowdown, the Indian economy is estimated to have grown at close to 6.7 per cent in
2008-09. The Confederation of Indian Industry (CII) pegs the GDP growth at 6.1 per cent in 2009-10. This
scenario factors in sectoral growth rates of 2.8-3 per cent, 5-5.5 per cent and 7.5-8 per cent, respectively, for
agriculture, industry and services.

A number of leading indicators, such as increase in hiring, freight movement at major ports and encouraging
data from a number of key manufacturing segments, such as steel and cement, indicate that the downturn
has bottomed out and highlight the Indian economy's resilience. Recent indicators from leading indices,
such as Nomura's Composite Leading Index (CLI), UBS' Lead Economic Indicator (LEI) and ABN Amro'
Purchasing Managers' Index (PMI), too bear out this optimism in the Indian economy.

Meanwhile, foreign institutional investors (FIIs) turned net buyers in the Indian market in 2009. Direct
investment inflows also remain strong, prompting official expectations that foreign direct investment (FDI)
inflows in 2009 would better the realised inflows of US$ 33 billion in 2008 and touch US$ 40 billion.

According to the Asian Development Bank's (ADB) 'Asia Capital Markets Monitor' report, the Indian equity
market has emerged as the third biggest after China and Hong Kong in the emerging Asian region, with a
market capitalisation of nearly US$ 600 billion.

The Economic scenario

Investor sentiment in India has improved significantly in the first quarter of 2009, according to a survey
conducted by Dutch financial services firm ING. With foreign assets growing by more than 100 per cent
annually in recent years, Indian multinational enterprises (MNEs) have become significant investors in global
business markets and India is rapidly staking a claim to being a true global business power, according to a
survey by the Indian School of Business and the Vale Columbia Center on Sustainable International
Investment.

Despite the global financial crisis, inflow of foreign capital to the country has increased sharply in 2008-09.

• India's foreign exchange reserves increased by US$ 4.2 billion to US$ 255.9 billion for the week
ended May 8, 2009, according to figures released in the Reserve Bank of India's (RBI) weekly
statistical supplement.
• Net inflows through various non-resident Indians (NRIs) deposits surged from US$ 179 million in
2007-08 to US$ 3,999 million in 2008-09, according to the RBI.
• FDI inflows during April 2008-January 2009 stood at US$ 23.9 billion compared with US$ 14.4
billion in the corresponding period of the previous fiscal, witnessing a growth of 65 per cent,
according to the Department of Industrial Policy & Promotion.
• FIIs have made investments of around US$ 2 billion as of May 14, 2009, including a record single
day net purchase of US$ 824.72 million on May 13, 2009, according to the Securities and
Exchange Board of India (SEBI).
• Inflation for the week ended March 7, 2009, fell to an all time low of 0.44 per cent. The sharp fall in
inflation was due to several factors including easing prices of food articles and fuel items along with
a high base effect. Currently, the inflation rate stood at 0.7 per cent for the week ended April 25,
2009.
• The year-on-year (y-o-y) aggregate bank deposits stood at 21.2 per cent as on January 2, 2009.
Bank credit touched 24 per cent (y-o-y) on January 2, 2009, as against 21.4 per cent on January 4,
2008.
• Since October 2008, the RBI has cut the cash reserve ratio (CRR) and the repo rate by 400 basis
points each. Also, the reverse repo rate has been lowered by 200 basis points. Till April 7, 2009,
 the CRR had further been lowered by 50 basis points, while the repo and reverse repo rates have
been lowered by 150 basis points each.
• Exports from special economic zones (SEZs) rose 33 per cent during the year to end-March 2009.
Exports from such tax-free manufacturing hubs totalled US$ 18.16 billion last year up from US$
13.60 billion a year before.

The rural India growth story

The Indian growth story is spreading to the rural and semi-urban areas as well. The next phase of growth is
expected to come from rural markets with rural India accounting for almost half of the domestic retail market,
valued over US$ 300 billion. Rural India is set to witness an economic boom, with per capita income having
grown by 50 per cent over the last 10 years, mainly on account of rising commodity prices and improved
productivity. Development of basic infrastructure, generation of employment guarantee schemes, better
information services and access to funding are also bringing prosperity to rural households.

Per Capita Income

The per capita income in real terms (at 1999-2000 prices) during 2008-09 is likely to attain a level of US$
528 as compared to the Quick Estimate for the year 2007-08 of US$ 500. The growth rate in per capita
income is estimated at 5.6 per cent during 2008-09, as against the previous year's estimate of 7.6 per cent.

Advantage India

• According to the World Fact Book, India is among the world's youngest nations with a median age
of 25 years as compared to 43 in Japan and 36 in USA. Of the BRIC—Brazil, Russia, India and
China—countries, India is projected to stay the youngest with its working-age population estimated
to rise to 70 per cent of the total demographic by 2030, the largest in the world. India will see 70
million new entrants to its workforce over the next 5 years.
• India has the second largest area of arable land in the world, making it one of the world's largest
food producers—over 200 million tonnes of foodgrains are produced annually. India is the world's
largest producer of milk (100 million tonnes per annum), sugarcane (315 million tonnes per annum)
and tea (930 million kg per annum) and the second largest producer of rice, fruit and vegetables.
• With the largest number of listed companies - 10,000 across 23 stock exchanges, India has the
third largest investor base in the world.
• India's healthy banking system with a network of 70,000 branches is among the largest in the
world.
• According to a study by the McKinsey Global Institute (MGI), India's consumer market will be the
world's fifth largest (from twelfth) in the world by 2025 and India's middle class will swell by over ten
times from its current size of 50 million to 583 million people by 2025.

Growth potential

• Special Economic Zones (SEZs) are set to see major investments after the straightening out of
certain regulatory tangles. The commerce department expects about 120 SEZs to be operational
by 2009-end, up from existing 87.
• According to the CII Ernst & Young report titled 'India 2012: Telecom growth continues,' India's
telecom services industry revenues are projected to reach US$ 54 billion in 2012, up from US$ 31
billion in 2008. The Indian telecom industry registered the highest number of subscriber additions at
15.84 million in March 2009, setting a global record.
• A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian consumer
market is likely to grow four times by 2025, which is currently valued at US$ 511 billion.
• The volume of mergers and acquisitions (M&As) and group restructuring deals in India witnessed a
sharp nine times jump at US$ 2.27 billion during March 2009 against the volume of deals in
February 2009, according to a Grant Thornton report.
• India ranks among the top 12 producers of manufacturing value added (MVA)—witnessing an
increase of 12.3 per cent in its MVA output in 2005-07 as against 6.9 per cent in 2000-05—
according to the United Nations Industrial Development Organisation (UNIDO).
 • In textiles, the country is ranked fourth, while in electrical machinery and apparatus it is ranked fifth.
It holds sixth position in the basic metals category; seventh in chemicals and chemical products;
10th in leather, leather products, refined petroleum products and nuclear fuel; twelfth in machinery
and equipment and motor vehicles.
• In a development slated to enhance India's macroeconomic health as well as energy security,
Reliance Industries (RIL) has commenced natural gas production from its D-6 block in the Krishna-
Godavari (KG) basin.
• India has a market value of US$ 270.98 billion in low-carbon and environmental goods & services
(LCEGS). With a 6 per cent share of the US$ 4.32 trillion global market, the country is tied with
Japan at the third position.

Exchange rate used:

1 USD = 49.58 INR (as on February 2009)
1 USD = 49.82 INR (as on April 2009
This is the html version of the file http://www.g7.utoronto.ca/summit/2007heiligendamm/g8-2007-
economy.pdf.
Google automatically generates html versions of documents as we crawl the web.
Page 1

GROWTH AND RESPONSIBILITY IN

THE
WORLD ECONOMY
Summit Declaration (7 June 2007)
Page 2
1
G8 AGENDA FOR GLOBAL GROWTH AND STABILITY
1. We have agreed on a policy agenda to promote a smooth adjustment of global im-
balances which should take place in the context of sustained robust global economic
growth. We have taken stock of the progress made to date and discussed further chal-
lenges lying ahead. Our agenda builds on discussions at the IMF and other international
fora. Open markets and competition are crucial elements, as are our efforts to promote
freedom of investment and the dynamics of innovation described hereafter.
2. We note that the world economy is in good condition and economic developments
are now more conducive to an adjustment than in the past, not least because we have
made progress in implementing our joint strategy. However, further efforts will be re-
quired to better rebalance global demand. Global imbalances took a long time to build.
Likewise, their unwinding is likely to be a gradual process, entailing a medium-term re-
balancing of demand growth across countries.
3. The economic environment has developed in a direction which favours the adjust-
ment of global imbalances. Growth is now more balanced across regions, as it has
moderated to a more sustainable pace in the US, while domestic demand has strength-
ened in Europe and remains supported by robust investment in Japan. We have made
progress in implementing our joint policy strategy:
The United • States has lent support to national savings by quickly and substan-
tially reducing the federal budget deficit.
In Canada, • domestic demand has been strong, supported by robust employment
growth. Governments have significant ongoing budget surpluses.
In Europe, • domestic demand has strengthened and the recent growth perform-
ance reflects prudent macroeconomic policies and a pay-off from structural re-
forms, including an improved labour market.
In Japan, as • strenuous structural reform efforts continue, the upswing has pro-
ceeded and is becoming broader based. Fiscal consolidation is progressing,
which is indispensable to reinforce confidence in the economy and to ensure sus-
tainable, solid growth.
Russia has • been enjoying seven consecutive years of robust economic growth
based on strong domestic consumption, a take-off in investment and a disci-
plined macroeconomic and financial management.
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2
4. Outside of our group, a number of countries in emerging Asia have taken first steps
on the road towards a more flexible exchange rate regime and a strengthening of the
financial sector, a move which would support this adjustment. Oil producing countries
have increased investment in oil production capacity and many have made prudent use
of their additional export revenues to promote the diversification of their economies and
employment. Their import growth has accelerated substantially.
5. Global imbalances have been showing some signs of stabilisation more recently and
deficits have been relatively easily financed. An orderly adjustment, which is in the in-
terest of the world economy, will take time. We are committed to implementing domestic
policies to promote this. They are first and foremost in each of our own best interests:
•
The United States is targeting the elimination of its federal budget deficit by 2012.
Policies also have been proposed to strengthen long-term fiscal sustainability
through entitlement and health care reform, tax incentives to promote private
saving, and proposals have been made to boost the use of alternative fuels and
enhance energy efficiency. The United States will continue to follow pro-growth
economic policies.
•
Europe will continue its structural reform efforts guided by the Lisbon strategy to
promote growth and employment.
•
Japan will continue its effort to enhance growth potential by implementing the
comprehensive program for boosting productivity growth announced in this April.
Fiscal reform will be steadily implemented to meet the targets committed by the
government, namely achieving surplus in the primary balance of the combined
central and local governments by 2011 as a first step for reducing the debt-to-
GDP ratio in a stable manner by the mid-2010s.
•
Russia is committed to pursue a sound macroeconomic policy framework and
prudent financial policies along with a range of structural reforms facilitating its
transition to self-sustaining, investment- and innovation-led growth.
•
Canada is committed to continuing to reduce government debt and has set an
objective of eliminating total government net debt in a generation. Canada is
also committed to continuing to lower taxes on persons and business and to re-
ducing regulatory burdens, as well as promoting knowledge creation and invest-
ing in infrastructure.
6. We encourage a contribution from the emerging market countries towards reducing
imbalances. Continued reforms to rebalance growth towards domestic demand, thus
enhancing its sustainability, are key to reducing imbalances while sustaining the robust
global expansion. In emerging economies with large and growing current account sur-
pluses, it is crucial that their effective exchange rates move so that necessary adjust-
ments will occur. Oil-producing countries should continue accelerating investment in
capacity and economic diversification.
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SYSTEMIC STABILITY AND TRANSPARENCY
OF FINANCIAL MARKETS / HEDGE FUNDS
7. We discussed recent developments in global financial markets, including hedge
funds, which, along with the emergence of advanced financial techniques and products,
such as credit derivatives, have contributed significantly to the efficiency of the financial
system. Nevertheless, the assessment of potential systemic and operational risks asso-
ciated with these activities has become more complex and challenging. Given the
strong growth of the hedge fund industry and the increasing complexity of the instru-
ments they trade, we reaffirm the need to be vigilant.
8. In this context, we welcome the Financial Stability Forum’s (FSF) update of its 2000
Report on Highly Leveraged Institutions and support its recommendations. The global
hedge fund industry should review and enhance existing sound practices benchmarks
for hedge fund managers; in particular in the areas of risk management, valuations and
disclosure to investors and counterparties in the light of expectations for improved prac-
tices set out by the official and private sectors. Counterparties and investors should act
to strengthen the effectiveness of market discipline, including, by obtaining accurate and
timely portfolio valuation and risk information. Supervisors should act so that core inter-
mediaries continue to strengthen their counterparty risk management practices. In the
exercise of their supervision of hedge funds counterparties, relevant authorities should
monitor developments and cooperate among themselves. We welcome that the Finan-
cial Stability Forum (FSF) will report to finance ministers as from October of this year on
the progress and actions taken in respect of these recommendations.
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4
FREEDOM OF INVESTMENT, INVESTMENT ENVIRONMENT
AND
SOCIAL RESPONSIBILITY
9. We recognize that the increase of cross-border direct investment is a major factor
shaping the world’s economy. Provided appropriate framework conditions are in place,
such inflows make a major positive contribution to economic growth, social and envi-
ronmental development. We note four areas for action in order to maximize the benefits
from cross-border investment:
reinforcing ♣ our G8 commitment to the freedom of investment,
promoting an ♣ open investment environment in industrialised countries and
emerging economies,
enabling ♣ greater benefits from and sustainability of foreign direct investments
(FDI) for developing countries,
promoting and ♣ strengthening corporate and other forms of social responsibility.
Freedom of investment
10. We will work together to strengthen open and transparent investment regimes and
to fight against tendencies to restrict them. Erecting barriers and supporting protection-
ism would result in a loss of prosperity. We therefore agree on the central role of free
and open markets for the world economy, respecting sustainability concerns, and the
need to maintain open markets to facilitate global capital movements. We reaffirm that
freedom of investment is a crucial pillar of economic growth, prosperity and employ-
ment. We call on all developed countries, major emerging economies and others to
critically assess their investment policies, the potential costs incurred from unnecessar-
ily restrictive or arbitrary policies and the economic benefits of open investment re-
gimes.
Page 6
5
11. Against this background we remain committed to minimize any national restrictions
on foreign investment. Such restrictions should apply to very limited cases which pri-
marily concern national security. The general principles to be followed in such cases are
non-discrimination, transparency and predictability. In any case, restrictive measures
should not exceed the necessary scope, intensity and duration. Applicable treaties relat-
ing to investment remain unaffected. We encourage the OECD to continue its work on
these issues, especially by identifying best practices and by further developing general
principles. We will work with the OECD and other fora to develop further our common
understanding of transparency principles for market-driven cross border investment of
both private and state-owned enterprises.
The global investment environment
12. Emerging economies benefit considerably from inward FDI while acting increasingly
as countries of origin of FDI. We see the need and the opportunity to work towards a
level playing field for all investors. Companies from G8 countries investing in emerging
economies expect to find the same open investment environment as companies from
such countries investing in G8 countries. Openness to investment is beneficial for all
parties involved.
13. We underscore that market-driven technology transfer is an important globalisation
catalyst. Governments have a role in establishing and maintaining the appropriate insti-
tutions and legal regulatory policy frameworks necessary to enable technology flows on
a commercial basis and assuring the respect of intellectual property rights.
14. Open and transparent procurement markets are an important precondition for cross-
border investments. We invite all our partners, in particular the major emerging econo-
mies, to create a level playing field for national and foreign tenderers. This may include
considerations to join the WTO's Government Procurement Agreement (GPA).
15. We call on the emerging economies to adopt the OECD Declaration on International
Investment and Multinational Enterprises. We invite the major emerging economies to
participate in a structured High Level Dialogue on investment conditions in industrialised
countries and emerging economies as part of the Heiligendamm Process. A stocktaking
exercise, an examination of best practices and the implementation of peer review
mechanisms to promote an open, efficient investment environment that aims to remove
remaining barriers to investment should be a good start. We ask the OECD to provide a
platform for such a dialogue.
Page 7
6
Investment in developing countries
16. Unlike industrialized and emerging economies, many less advanced developing
countries often reap only inadequate benefits from FDI. In shared responsibility with our
developing country partners we want to enable quality FDI inflows to grow, inflows that
help local infrastructure facilitate the operations of national and foreign investors that
improve the skills of the local labour force and the advantages of transfers of manage-
ment skills and technology that accrue from FDI increase, and that support the ability of
domestic firms to supply inputs to foreign-invested companies or strengthen interna-
tional value chains. Economic, social and environmental aspects of sustainability are
crucial in order to maximize the FDI benefits for all developing countries, including least
developed countries.
17. We support the regional and multilateral development banks (MDBs), including the
International Finance Corporation (IFC) and the Multilateral Investment Guarantee
Agency (MIGA), in addressing the problem of poor business environments in their bor-
rowing members and urge them to integrate efforts to address these impediments to
investment in their country strategies and budgets.
18. We support the initiative of G8 Finance Ministers to foster the development of
deeper, more liquid local bond markets in emerging economies. This can make an im-
portant contribution to reducing the vulnerability of individual countries to crises and to
enhancing the financial stability of emerging countries as a whole.
19. We support the OECD Policy Framework for Investment and UNCTAD Investment
Policy Reviews as valuable mechanisms in defining a shared understanding of healthy
investment climates in emerging economies and developing countries. The OECD Pol-
icy Framework for Investment could be translated into national practices and develop-
ment strategies, especially for countries under the New Partnership for African Devel-
opment (NEPAD) and Asia Pacific Economic Cooperation (APEC) framework. We
invite
the OECD, UNCTAD and other organisations such as the World Bank to consider pro-
viding the necessary support for this purpose.
20. We invite UNCTAD and the OECD to jointly engage industrialized countries, emerg-
ing economies and developing countries in the development of best practices for creat-
ing an institutional environment conducive to increased foreign investment and sustain-
able development. Such a comprehensive process should be closely connected with the
twelfth UN Conference on Trade and Development (UNCTAD XII) planned for 20th to
25th April 2008 in Accra (Ghana).
Page 8
7
Investment and responsibility – the social dimension of globalization
21. Globalization and technological progress have resulted in rapid structural change in
many regions and economic sectors. We acknowledge that structural change is the in-
evitable result of progress and that it brings dislocations along with opportunities. Open
markets rest on political acceptance, social inclusion, gender equality and the integra-
tion of traditionally under-represented groups such as older workers, youth, immigrants
and persons with disabilities. In order to address the social dimension of the globalisa-
tion process, we identify the four following areas of action.
22. Promoting and further developing social standards: We are convinced that a global-
isation that is complemented with social progress will bring sustainable benefits to both
industrial and developing countries. We recognize our responsibility for an active contri-
bution towards this objective. Therefore, we support the International Labour Organiza-
tion’s (ILO) Decent Work Agenda with its four pillars of equal importance: the effective
implementation of labour standards, especially the ILO core labour standards, the crea-
tion of more productive employment, further development of inclusive social protection
systems and the support of social dialogue between the different stakeholders.
23. While stressing that labour standards should not be used for protectionist purposes,
we invite the WTO members and interested international organizations, in close collabo-
ration with the ILO, to promote the observance of internationally recognized core labour
standards as reflected in the ILO declaration on Fundamental Principles and Rights and
its follow-up. We also commit to promoting decent work and respect for the fundamental
principles in the ILO Declaration in bilateral trade agreements and multilateral fora.
24. Strengthening the principles of Corporate Social Responsibility: In this respect, we
commit ourselves to promote actively internationally agreed corporate social responsi-
bility and labour standards (such as the OECD Guidelines for Multinational Enterprises
and the ILO Tripartite Declaration), high environmental standards and better govern-
ance through OECD Guidelines’ National Contact Points. We call on private corpora-
tions and business organizations to adhere to the principles in the OECD Guidelines for
Multinational Enterprises. We encourage the emerging economies as well as develop-
ing countries to associate themselves with the values and standards contained in these
guidelines and we will invite major emerging economies to a High Level Dialogue on
corporate social responsibility issues using the OECD as a platform.
25. We stress in particular the UN Global Compact as an important CSR initiative; we
invite corporations from the G8 countries, emerging nations and developing countries to
participate actively in the Global Compact and to support the worldwide dissemination of
this initiative.
26. In order to strengthen the voluntary approach of CSR, we encourage the improve-
ment of the transparency of private companies’ performances with respect to CSR, and
clarification of the numerous standards and principles issued in this area by many dif-
Page 9
8
ferent public and private actors. We invite the companies listed on our Stock Markets to
assess, in their annual reports, the way they comply with CSR standards and principles.
We ask the OECD, in cooperation with the Global Compact and the ILO, to compile the
most relevant CSR standards in order to give more visibility and more clarity to the vari-
ous standards and principles.
27. Reinforcing Corporate Governance: Corporate governance is a key element in im-
proving economic efficiency and growth as well as enhancing investor confidence. Good
corporate governance provides proper incentives for the board and management to
pursue objectives that are in the interests of the company and its shareholders and fa-
cilitates effective monitoring and surveillance. While corporate governance challenges
are present everywhere, they are particularly acute in emerging economies. We en-
courage the widest adherence to the OECD Corporate Governance Principles and sup-
port the continuation of the work of the OECD / World Bank Regional Corporate Gov-
ernance Roundtables.
28. Investing in social protection systems: Social protection is an investment in a coun-
try's economic future and a cost-effective way of fighting poverty. It includes appropriate
protection against life's major risks and appropriate coverage for everyone, aiming at
improved education and health. Social protection has the capacity to contribute to indi-
vidual employability and to ensure that those who can work obtain adequate support to
find employment and to obtain skills demanded by the labour market.
29. Social protection systems contain some universal elements and should be based on
values such as social equity, fairness, and justice in order to promote equal opportuni-
ties and participation. We believe that social security systems require further develop-
ment and extension of coverage taking into account nations’ abilities to provide such
coverage given their varying states of economic growth and recognizing the fact that
there can be no one size fits all model of social protection. We agree to keep this issue
on our development policy agenda, encouraging relevant international organizations to
work in close cooperation on this issue. We recognize that in conjunction with economic
growth and active labour market policies, social security is an instrument for sustainable
social and economic development.
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9
PROMOTING INNOVATION – PROTECTING INNOVATION
30. Science, research and innovation today more than ever form the basis of economic
growth and prosperity. Political and economic strategies to foster innovation are there-
fore key elements for the future development of industrialised countries, emerging
economies and developing countries alike. We will undertake to bring forward an inter-
national economic and political environment that promotes and protects innovation.
Innovation for Sustainable Growth
31. Forward looking innovation policy is geared towards promoting the research com-
munity and towards translating ideas, the product of the research process, into innova-
tive products and services. Whereas the promotion of research involves education and
higher-education policy, economic policy can play a crucial role in promoting the transla-
tion of research into innovative products and in fostering an innovation-friendly business
environment. Both tasks benefit from the engagement of national governments. Interna-
tional cooperation and exchanges can supply a substantial impetus in the shaping of
national policy. Cooperation between advanced and developing countries in research
activities in the field of science and technology should also be strengthened.
32. Because we strive to provide scientific and technical leadership we also recognize
our responsibility for a long-term oriented research initiative that will focus on concentra-
tion of scientific research and improved technological capacity in order to be able to re-
act most effectively to future global challenges. We recognize the increasing signifi-
cance of many emerging economies in science and research and invite them to actively
participate in this process by reinforcing already existing cooperative efforts in the
OECD building also on the results of ongoing work promoted inter alia by the relevant
UN bodies.
33. In this respect we support the engagement of the OECD to work on proposals for
topical international collaborative efforts. Based on the work of the Global Science Fo-
rum (GSF), we recognize the value that the GSF will bring as the moderator of this
process. We also support the sharing of information among the G8 and emerging
economies on national research endeavours in order to identify priorities that could be
enhanced by collaborative research efforts, joint initiatives and programmes on areas of
common interest. Possible areas of cooperation could be sustainable use of water and
Page 11
10
land and research in the field of energy efficiency as well as the promotion of environ-
mentally-related innovations both in the public and in the business sector. We will work
together to achieve more effective coordination and cooperation in our research efforts
in these fields.
Intellectual Property Protection as the Backbone of Innovation
34. A fully functioning intellectual property system is an essential factor for the sustain-
able development of the global economy through promoting innovation. We recognize
the importance of streamlining and harmonizing the international patent system in order
to improve the acquisition and protection of patent rights world-wide.
35. The benefits of innovation for economic growth and development are increasingly
threatened by infringements of intellectual property rights worldwide. We therefore
strongly reaffirm our commitment to combat piracy and counterfeiting. Trade in pirated
and counterfeit goods threatens health, safety and security of consumers worldwide,
particularly in poorer countries. In this regard we welcome work on the WHO initiative
to
implement the International Medicinal Products Anti-Counterfeit Taskforce (IMPACT).
Our common efforts in this combat are therefore in the interest of all countries at all lev-
els of development.
36. We commit to strengthen cooperation in this critical area among the G8 and other
countries, particularly the major emerging economies, as well as competent interna-
tional organizations, notably the World Intellectual Property Organization (WIPO),
WTO,
the World Customs Organization (WCO), Interpol, the World Health Organization
(WHO), the OECD, APEC, and the Council of Europe. We invite these organizations to
reinforce their action in this field.
37. We welcome the joint Declaration of the business communities of all G8 countries
on “Strategies of G8 Industry and Business to Promote Intellectual Property Protection
and to Prevent Counterfeiting and Piracy” which highlights actions companies are taking
to secure their intellectual property rights at home and abroad and to keep their global
supply chains free of pirated and counterfeit goods – from producers and distributors,
retailers and merchandisers. Industry and business have an essential role to play in pro-
tecting innovation, and we will engage our respective private sectors on effective solu-
tions with regard to both the supply and the demand side of piracy and counterfeiting.
We also welcome educational campaigns with the help of business communities in our
countries directed at raising awareness of consumers with regards to the negative ef-
fects of counterfeiting and piracy.
38. In light of the urgency to implement concrete measures which will improve and
deepen cooperation among G8 partners and deliver real enforcement results, we decide
to undertake the following:
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11
(a) We endorse the Guidelines for Customs and Border Enforcement Cooperation de-
signed to strengthen cooperation and coordination among our national customs and law
enforcement administrations. In this context we especially welcome the development of
an effective information exchange system – where appropriate - in close association
with the WCO which will lead to improved cooperation among the relevant enforcement
authorities worldwide.
(b) We endorse new Guidelines for Technical Assistance on intellectual property rights
protection to interested developing countries, as well as a mechanism to better coordi-
nate and leverage existing G8 assistance to such countries with a view to building the
capacity necessary to combat trade in counterfeited and pirated goods to strengthen
intellectual property enforcement. In partnership with certain developing countries we
agree to launch technical assistance pilot plans with a view to building the capacity nec-
essary to combat trade in counterfeited and pirated goods to strengthen intellectual
property enforcement. The progress on these pilot plans will be reviewed by the G8 in
2008.
(c) We endorse the recommendations aimed at improving G8 member countries’ coop-
erative actions to combat serious and organized intellectual property rights crimes and
the further work on their basis to facilitate structured international cooperation regarding
the investigation and prosecution of those crimes.
(d) While appreciating the information contained in the OECD report estimating the eco-
nomic impacts of counterfeiting and piracy on national economies and right holders, as
well as public health and safety, we will encourage the OECD to work with member
states to further identify and target in its report specific areas for concrete actions.
(e) We recognize the need for continued study by national experts of the possibilities of
strengthening the international legal framework pertaining to IPR enforcement.
(f) We consider the establishment of an IPR Task Force focusing on anti-counterfeiting
and piracy to look together at how best to improve the working of the international IPR
protection and enforcement, and produce recommendations for action including im-
proved peer review. The issue will also be considered in the Heiligendamm Process.
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A New Dialogue on Innovation and Intellectual Property Protection
39. Lively interaction between science and business, strong protection and enforcement
of intellectual property rights, and the combination of market-based entrepreneurship
and science-based research are increasingly decisive factors in promoting economic
growth and development around the world. We invite the major emerging economies to
a follow up process using the OECD as a platform with the aim of establishing a new
international dialogue on innovation and intellectual property protection as part of the
Heiligendamm Process. Such a dialogue will provide a forum for the positive exchange
on topics critical for growth of successful knowledge economies and the promotion of an
innovation-friendly business environment also taking into account the needs of small
and medium sized enterprises, including: (a) the crucial role and economic value of in-
tellectual property protection and implementation as a central framework condition for
the development of a future-oriented economy based on technological progress and
innovation; (b) effective market incentives for innovation and the diffusion of knowledge
at the national level taking into account recent developments in technology markets;
and (c) the crucial importance of efficient innovation value chains that promote busi-
ness commercialization of patented research results and exploit licensing as a major
driver for the international transfer of technology. The dialogue could furthermore ascer-
tain measures the industrialized countries and major emerging economies can take to
achieve fully effective implementation and protection of intellectual property rights
within
their own territory. Fully respecting the mandate, function and role of the competent
multilateral organizations, in particular the WTO and the WIPO, participants in the dia-
logue may also discuss initiatives aimed at strengthening intellectual property rights pro-
tection which should then be addressed in the appropriate international fora. The G8
Summit 2009 will take stock of the progress made by that date.
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CLIMATE CHANGE, ENERGY EFFICIENCY AND ENERGY
SECURITY -
CHALLENGE AND OPPORTUNITY FOR WORLD ECONOMIC
GROWTH
40. Humanity today faces the key interlinked challenges of avoiding dangerous climate
change and ensuring secure and stable supplies of energy. Since we met in Glenea-
gles, science has more clearly demonstrated that climate change is a long term chal-
lenge that has the potential to seriously damage our natural environment and the global
economy. We firmly agree that resolute and concerted international action is urgently
needed in order to reduce global greenhouse gas emissions and increase energy secu-
rity. Tackling climate change is a shared responsibility of all, and can and must be un-
dertaken in a way that supports growth in developing, emerging and industrialised
economies, while avoiding economic distortions.
41. We recognise the important opportunities offered by effective action addressing cli-
mate change, in particular for innovation, technological development as well as poverty
reduction. Strong economies together with a wide range of policy instruments such as
market-based mechanisms, including emissions-trading, tax incentives, and regulatory
measures as well as technology cooperation and a shared long-term vision, are key to
guide investment decisions, to generate technology commercialisation, to enhance en-
ergy security, to promote sustainable development and to slow, stabilize and then sig-
nificantly cut global emissions of greenhouse gases.
42. We are committed to take strong leadership in combating climate change. We con-
firm our determination to work among ourselves and with the global community on
global solutions that address climate change while supporting growth and economic
development. We commit ourselves to implement approaches which optimally combine
effective climate protection with energy security. To this end, we are committed to the
further development of the international regime to combat climate change, especially in
the run-up to the UN Climate Change Conference in Indonesia at the end of this year.
Addressing climate change is a long term issue that will require global participation and
a diversity of approaches to take into account differing circumstances.
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43. Energy is a fundamental driver of growth and development around the world, and
the use of energy has been steadily expanding along with the world’s populations and
economies. Our ability to provide secure access to clean, affordable and safe sources
of energy to maintain global economic growth complements our desire to protect our
environment. Addressing the challenge of energy security will require unprecedented
international cooperation in several areas, including market transparency, enhancing
energy efficiency, diversifying energy supplies and developing and deploying new and
transformational technologies.
44. Energy has been a major field of action for the G8, not least in recent years. We
recall that after focusing on resource efficiency in a broader sense (in particular the 3R-
Initiative) following the Evian and Sea Island Summits, the Gleneagles G8-Action Plan
dealt intensively with clean energy. At the St. Petersburg Summit we adopted ground-
breaking decisions on energy security and committed ourselves to a set of agreed areas
of cooperation, inter alia to increase transparency, predictability and stability of global
energy markets, improving investment climate in the energy sector, enhance energy
efficiency, diversify the energy mix, ensure the security of critical energy infrastructure,
reduce energy poverty and address climate change. To maintain the momentum of
those achievements we herewith strongly reaffirm our commitment to Global Energy
Security Principles, including our commitment to enhance dialogue on relevant share-
holders’ perspectives on growing interdependence, security of supply and demand is-
sues, facilitate diversification of different types of contracts, including market-based
long-term and spot contracts, promote investment in upstream and downstream assets
internationally, support the principles of the Energy Charter and the efforts of the par-
ticipating countries to improve international energy co-operation.
45. To maintain the momentum of that groundbreaking achievement, we
invite China, • Brazil, India, Mexico and South Africa and other major emerging
economies to adopt these Global Energy Security Principles,
will prepare • national reports, with the assistance of the IEA, evaluating G8 mem-
ber states’ efforts to adhere to those principles, for delivery at the 2008 G8 sum-
mit, and
note the • importance of government-controlled strategic oil reserves, to lessen the
impact of sudden and severe natural or man-made disruptions to oil supplies,
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15
and encourage the IEA to further assist major emerging oil consuming countries
to adopt best practices with regard to building, maintaining and coordination the
release of strategic oil reserves.
46. This year we have focussed our discussions on energy efficiency in order to make
an effective contribution towards meeting global climate and energy security challenges.
Improving energy efficiency worldwide is the fastest, the most sustainable and the
cheapest way to reduce greenhouse gas emissions and enhance energy security.
47. We welcome the progress made so far at the meetings of the Gleneagles Dialogue
on Climate Change, Clean Energy and Sustainable Development, held in the United
Kingdom in 2005 and Mexico in 2006. We also welcome the intentions of Germany and
Japan to host the Dialogue meetings during their G8 Presidencies. We look forward to
receiving a report of the Dialogue at the G8 Summit next year under the Japanese G8
Presidency.
CLIMATE CHANGE
48. We take note of and are concerned about the recent UN Intergovernmental Panel
on Climate Change (IPCC) reports. The most recent report concluded both, that global
temperatures are rising, that this is caused largely by human activities and, in addition,
that for increases in global average temperature, there are projected to be major
changes in ecosystem structure and function with predominantly negative conse-
quences for biodiversity and ecosystems, e.g. water and food supply.
Fighting Climate Change
49. We are therefore committed to taking strong and early action to tackle climate
change in order to stabilize greenhouse gas concentrations at a level that would prevent
dangerous anthropogenic interference with the climate system. Taking into account the
scientific knowledge as represented in the recent IPCC reports, global greenhouse gas
emissions must stop rising, followed by substantial global emission reductions. In set-
ting a global goal for emissions reductions in the process we have agreed today involv-
ing all major emitters, we will consider seriously the decisions made by the European
Union, Canada and Japan which include at least a halving of global emissions by 2050.
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We commit to achieving these goals and invite the major emerging economies to join us
in this endeavour.
50. As climate change is a global problem, the response to it needs to be international.
We welcome the wide range of existing activities both in industrialised and developing
countries. We share a long-term vision and agree on the need for frameworks that will
accelerate action over the next decade. Complementary national, regional and global
policy frameworks that co-ordinate rather than compete with each other will strengthen
the effectiveness of the measures. Such frameworks must address not only climate
change but also energy security, economic growth, and sustainable development objec-
tives in an integrated approach. They will provide important orientation for the neces-
sary future investment decisions.
51. We stress that further action should be based on the UNFCCC principle of common
but differentiated responsibilities and respective capabilities. We reaffirm, as G8 lead-
ers, our responsibility to act. We acknowledge the continuing leadership role that devel-
oped economies have to play in any future climate change efforts to reduce global
emissions, so that all countries undertake effective climate commitments tailored to their
particular situations. We recognise however, that the efforts of developed economies
will not be sufficient and that new approaches for contributions by other countries are
needed. Against this background, we invite notably the emerging economies to address
the increase in their emissions by reducing the carbon intensity of their economic devel-
opment. Action of emerging economies could take several forms, such as sustainable
development policies and measures, an improved and strengthened clean development
mechanism, the setting up of plans for the sectors that generate most pollution so as to
reduce their greenhouse gas emissions compared with a business as usual scenario.
52. We acknowledge that the UN climate process is the appropriate forum for negotiat-
ing future global action on climate change. We are committed to moving forward in that
forum and call on all parties to actively and constructively participate in the UN Climate
Change Conference in Indonesia in December 2007 with a view to achieving a compre-
hensive post 2012-agreement (post Kyoto-agreement) that should include all major
emitters.
53. To address the urgent challenge of climate change, it is vital that major economies
that use the most energy and generate the majority of greenhouse gas emissions agree
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17
on a detailed contribution for a new global framework by the end of 2008 which would
contribute to a global agreement under the UNFCCC by 2009.
We therefore reiterate the need to engage major emitting economies on how best to
address the challenge of climate change. We embrace efforts to work with these coun-
tries on long term strategies. To this end, our representatives have already met with the
representatives of Brazil, China, India, Mexico and South Africa in Berlin on 4 May
2007. We will continue to meet with high representatives of these and other major en-
ergy consuming and greenhouse gas emitting countries to consider the necessary com-
ponents for successfully combating climate change. We welcome the offer of the United
States to host such a meeting later this year. This major emitters’ process should in-
clude, inter alia, national, regional and international policies, targets and plans, in line
with national circumstances, an ambitious work program within the UNFCCC, and the
development and deployment of climate-friendly technology.
This dialogue will support the UN climate process and report back to the UNFCCC.
Technology
54. Technology is a key to mastering climate change as well as enhancing energy secu-
rity. We have urgently to develop, deploy and foster the use of sustainable, less carbon
intensive, clean energy and climate-friendly technologies in all areas of energy produc-
tion and use. We have to develop and create supportive market conditions for accelerat-
ing commercialisation of new less carbon intensive, clean-energy and climate-friendly
technologies. Furthermore, to ensure sustainable investment decisions worldwide, we
need an expanded approach to collaboratively accelerate the widespread adoption of
clean-energy and climate-friendly technologies in emerging and developing economies.
Therefore, we will
stimulate • global development, commercialisation, deployment and access to tech-
nologies,
promote major • emerging and developing economies’ participation in international
technology partnerships and collaborations,
scale up • national, regional and international research and innovation activities and
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18
undertake • strategic planning and develop technology roadmaps to strengthen the
role of advanced technology in addressing climate change.
Market Mechanisms
55. Private sector investment is and will remain the primary means of technology de-
ployment and diffusion. Strong economies and a wide range of policy instruments are
required to develop, deploy and foster climate-friendly technologies. Market mecha-
nisms, such as emissions-trading within and between countries, tax incentives, per-
formance-based regulation, fees or taxes, and consumer labelling can provide pricing
signals and have the potential to deliver economic incentives to the private sector. Fos-
tering the use of clean technologies, setting up emissions-trading systems and, as many
of us are doing, linking them are complementary and mutually reinforcing approaches.
Therefore, we will share experience on the effectiveness of the different policy instru-
ments in order to
better • provide the international business community with a predictable and long-
term perspective, and
strengthen • and extend market mechanisms by, inter alia, developing and extend-
ing existing programmes, taking into account the appropriate metrics for such sys-
tems.
Reducing Emissions by Curbing Deforestation
56. We are determined to assist in reducing emissions from deforestation, especially in
developing countries. Reducing, and in the long term halting deforestation provides a
significant and cost-effective contribution toward mitigating greenhouse gas emissions
and toward conserving biological diversity, promoting sustainable forest management
and enhancing security of livelihoods. To this end, we will
encourage the • establishment of a pilot project dedicated to building capacity,
creating and testing performance-based instruments to reduce emissions from
deforestation in developing countries, in support of and without prejudice to on-
going UN climate change discussions. We therefore encourage the World Bank,
in close cooperation with the G8, developing countries, the private sector, NGOs
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19
and other partners, to develop and implement such a forest carbon partnership
as soon as possible.
continue to • support existing processes to combat illegal logging. Illegal logging is
one of the most difficult obstacles to further progress in realising sustainable for-
est management and thereof, in protecting forests worldwide,
remain • engaged in supporting developing countries to achieve their self-
commitments for halting forest loss and to implement sustainable forest man-
agement, as stated in various regional initiatives, i.e. the Congo Basin and the
Asia Forest Partnerships. Good results and good practice in international coop-
eration have also been achieved through ITTO projects and the Brazilian Pilot
Program to conserve the tropical rain forests.
57. At the St. Petersburg Summit, we agreed to enhance international co-operation in
the area of sustainable forest management. We welcome the recent agreement at the
UN Forum on Forests on a non-legally binding instrument on the sustainable manage-
ment of all types of forests. We note that the effectiveness of this instrument will be re-
viewed by the UN Forum on Forests in 2015. Building on these initiatives, we are de-
termined and urge the international community to strengthen co-operation and the shar-
ing of best practices at all levels. Consideration of additional actions on sustainable for-
est management could be a possible next step for parties willing to expand on their
commitments.
Adapting to Climate Change
58. We acknowledge that even implementing the ambitious mitigation steps described
above will not avoid further climate impacts, especially in those developing countries
and regions which are most vulnerable to climate change. We are committed to enhanc-
ing resiliency to climate variability and climate change in a way that fully supports our
common goal of sustainable development. We welcome the adoption of the Nairobi
work programme on impacts, vulnerability, and adaptation to climate change. We also
note the importance of the UN adaptation funds in helping developing countries main-
stream adaptation into policies and programming. We emphasise our willingness to con-
tinue and enhance cooperation with and support for developing countries in adapting to
climate change and enhancing their resilience to climate variability, in particular those
most vulnerable to the negative impacts of climate change. We also emphasise our will-
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20
ingness to work with developing countries on the costs and benefits of climate change
adaptation measures to help integrating them in national development planning. We
reaffirm our commitment to assist with climate research and risk assessments including
through helping developing countries benefit from satellite observation systems.
59. We will also endeavour under the Montreal Protocol to ensure the recovery of the
ozone layer by accelerating the phase-out of HCFCs in a way that supports energy effi-
ciency and climate change objectives. In working together toward our shared goal of
speeding ozone recovery, we recognize that the Clean Development Mechanism im-
pacts emissions of ozone-depleting substances. We will continue to exercise leadership
in the development of the Global Earth Observation System of Systems (GEOSS).
60. We will report on the progress achieved in the areas mentioned above at the G8
Summit in 2008.
Biodiversity
61. We emphasise the crucial importance of the conservation and the sustainable use
of biodiversity as an indispensable basis for the provision of vital ecosystem services
and the long term provision of natural resources for the global economy. We acknowl-
edge the "Potsdam Initiative – Biological Diversity 2010" presented at the G8 Environ-
mental Ministerial meeting in March 2007 and will increase our efforts for the protection
and sustainable use of biological diversity to achieve our agreed goal of significantly
reducing the rate of loss of biodiversity by 2010.
ENERGY EFFICIENCY
62. The global potential for saving energy is huge. According to the International Energy
Agency, successfully implemented energy efficiency policies could contribute to 80% of
avoided greenhouse gases while substantially increasing security of supply.
63. We recognise that enhanced international cooperation offers enormous opportuni-
ties. Against this background we are committed to further strengthening and increasing
our efforts of co-operation, both at inter-state level as well as within the framework of
the respective international fora and organisations.
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21
To this end, we will
continue and • further substantiate our energy-efficiency dialogue begun at Evian;
move forward • with implementing the Gleneagles and St. Petersburg Action
Plans, thereby retaining and supporting the IEA’s close involvement;
take forward • the concrete recommendations on energy efficiency presented by
the IEA and consider drawing on these when preparing national energy effi-
ciency plans;
encourage the • World Bank and other IFIs to further broaden and improve their
financial framework for energy efficiency and clean energy;
note the EU’s • proposal for an international agreement on energy efficiency and
ask the Gleneagles Dialogue on Climate Change, Clean Energy and Sustainable
Development and the IEA to explore the most effective means to promote en-
ergy efficiency internationally, including through the exchange of best practices,
sharing methodologies and further cooperation and by inviting other countries
with significant energy needs to join;
promote • international research, encourage investment and development co-
operation aimed at energy efficient technologies and other greenhouse gas miti-
gation options;
report on • progress in the policies and measures on energy efficiency outlined
below at the G 8 summit in 2008.
64. We note that, in view of their high energy needs, industrialised and emerging econo-
mies have a fundamental joint interest in taking measures to encourage the most effec-
tive use of their energy.
65. Against this background we commit ourselves to a model of efficient energy sys-
tems and call on other countries with high energy demand, including the major emerg-
ing economies, to join us in this endeavour. Our goal of building less energy intensive
economies will also advance economic growth and competitiveness. To this end, we will
promote the appropriate policy approaches and instruments, including inter alia eco-
nomic incentives and sound fiscal policies, minimum standards for energy efficiency,
sound and ambitious energy performance labelling, information campaigns aimed at
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consumers and industry that enhance national awareness, sector-based voluntary
commitments agreed with industry, investment in research and development and guide-
lines for public procurement. We will develop and implement national energy efficiency
programmes and advance international cooperation on energy efficiency, notably on
efficiency standards. We ask the IEA to continue to support our national efforts by ap-
propriate advice and make proposals for effective international co-operation.
66. We will furthermore work together with the major emerging economies towards a
reduction in energy consumption in priority sectors. To this end we will invite the IEA,
its
members and their respective industries to increase the dialogue with the major emerg-
ing economies on more efficient energy policies and develop guidance mechanisms.
Sustainable Buildings
67. The opportunities for making buildings more efficient are enormous. Following the
EU/G8 conference on energy efficiency, held in Berlin in April 2007, we will
set up a • "Sustainable Buildings Network", involving the G8 and open for partici-
pation of the major emerging economies. The network will develop practical in-
struments for assessing and advising on the implementation of energy efficiency
in buildings and the use of renewable energies, especially for cooling and heat-
ing, taking into due consideration the different situations of new and existing
buildings, and development and deployment of low and zero-carbon buildings,
invite the • IEA to take a central role in creating this network,
work to • increase energy efficiency in the building sector, and to reach a consid-
erable expansion of renewable energies in this area. To this end we will consider
the role of nationally determined targets in sustainable buildings and their impor-
tance for energy efficiency in the medium to long term. We will actively support
the energy efficient technologies and the use of renewable energies by employ-
ing market mechanisms, promotion instruments and framework legislation, as
well as through public-private-partnership initiatives to move towards low or
zero-energy buildings. Instruments to this end include consumer information
such as energy performance certificates (“building passports”) and individual en-
ergy standards – which also consider renewable energies - for new buildings,
modernisation or household equipment.
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Transportation
68. Today there are 600 million motor vehicles around the globe, a figure which is pro-
jected to double by 2020. With this in mind, we will
work to • increase energy efficiency in the transport sector. To this end we will ask
our governments to foster a large number of possible measures and various in-
struments that can clearly reduce energy demand and CO2 emissions in the
transport sector, including inter alia innovative engine concepts, alternative fuels,
city planning measures, public transport, best possible inter-linkage of transport
methods, increase the share of alternative fuels and energy carriers (biofuels,
hydrogen, LPG/CNG, electricity, hybrid, etc.) in total fuel consumption; fuel di-
versification, for example synthetic and cellulosic biofuels and CO2-free hydro-
gen, particularly in combination with the fuel cell, will be decisive in reducing
transport CO2 emissions, provided that second generation biofuel technologies
become commercially available,
step up • coordination on development of international biofuel quality standards
from various feedstocks to achieve optimal interoperability and emission profiles,
avoid • possible negative side-effects in biofuel development, particularly in devel-
oping countries in order to prevent competition between different forms of land
uses, and promote sustainability in biomass cultivation. We invite the Global
Bioenergy Partnership (GBEP) to continue its work on biofuel best practices and
take forward the successful and sustainable development of bioenergy,
monitor the • implementation of the necessary measures and discuss progress at
two-year intervals during the Environmentally Friendly Vehicles Conference the
results of which shall be reported to G8-leaders,
introduce • energy efficiency labels for new cars along the lines of those already
on some white goods.
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Power Generation
69. Over the next 25 years, fossil fuels will remain the world’s dominant source of en-
ergy. Making power generation more efficient, climate friendly and sustainable is there-
fore crucial.
70. Current innovations in power station design bear significant saving potential. There-
fore, we will
stimulate • investments in high efficient power plants and grids and promote refur-
bishment of existing ones by an appropriate national policy framework. By this
we aim to increase average power plant efficiencies in each of our countries.
continue and • expand national and international research and development ef-
forts to further advance modern power station technologies, with the aim of
achieving higher efficiency levels
adopt • instruments and measures to significantly increase the share of combined
heat and power (CHP) in the generation of electricity.
71. The centre of gravity of global energy demand is continuously shifting towards the
emerging economies. We will
enhance • energy co-operation with those countries as a priority issue, including
by actively supporting co-operative research, voluntary technology partnerships
and private investment in clean technologies,
work in close • partnership with industry, science and with governments of other
industrialised countries and, in particular, of major emerging economies in order
to foster the diffusion and adoption of best practices along the entire fossil fuel
process chain with a focus on fuel treatment as well as new and existing power
plants. We particularly underline the need to promote capacity building and tech-
nology transfer on plant renovation and modernisation. To achieve these goals
we will invite the IEA to take a central role in guiding our joint efforts.
72. In recognition of the increasingly urgent needs to achieve longer term greenhouse
gas abatement, we will work on accelerating development and deployment of carbon
capture and storage (CCS), including by
prioritising • national and international research and development efforts and en-
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25
couraging international research and technology cooperation, to minimise effi-
ciency losses of the different carbon capture technologies and to clarify geo-
technical conditions for secure CO2 storage,
encourage • research, development and deployment of clean coal technologies in
both developed and emerging economies with the highest energy needs,
supporting • national and international geoscientific and political efforts in the field
of CCS on ensuring security of storage and the provision of necessary legal
frameworks to create a stable investment climate, thereby working in co-
operation with industry as well as national and international research pro-
grammes,
reinforcing • our commitment made under the Gleneagles and St. Petersburg
Plans of Action to support the initiatives taken by IEA and Carbon Sequestration
Leadership Forum (CSLF),
encouraging • our governments to design mechanisms to stimulate the construc-
tion and operation of a growing number of large-scale demonstrations of sus-
tainable fossil fuels technologies in commercial power generation.
encouraging • industry to consider the concept of capture ready when developing
new fossil fuel power plant
73. We reaffirm our support of the efforts of the Global Gas Flaring Reduction Partner-
ship (GGFR) and we commit ourselves to reduce to minimal levels natural gas flaring,
and to encourage all oil producing states and private sector stakeholders to do likewise.
Industry
74. Over the next 25 years, global energy consumption in the industrial sector is pro-
jected to increase significantly. There is a considerable potential for improving energy
efficiency. Therefore, we will
cooperate • more closely with major emerging economies and leading industries
on improving energy efficiency in energy intensive industries utilising on-going
work of the IEA for developing sector energy efficiency indicators and combining
good practices.
encourage the • introduction of cost-effective technology as well as promote re-
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search and development for further innovation for breakthrough of the technol-
ogy in such areas as iron, steel and cement.
Energy Diversification
75. Diversification of energy sources, markets, transportation routes and means of
transport and types of energy is essential to energy security and to a low-carbon energy
path. Increasing and varying our sources of energy helps to defuse the risks of disrup-
tion from any one source. Increasing the use of alternative sources of energy can over
time greatly relieve pressure on markets for conventional fossil fuels and reduce the
adverse environmental impacts of energy use.
76. Underlining the importance of energy diversification, and recognising that G8 mem-
bers will choose different ways to achieve their energy diversity goals, we
will continue • to develop and implement the policy frameworks needed to sup-
port our intensive commitment to the global use of all clean fuels, including
clean coal, renewable energy sources (wind, solar, geothermal, bioenergy,
hydro power). We will make efforts to integrate renewables into the power
grid,
reaffirm our • pledge at former summits regarding the peaceful use of nuclear
energy. Those of us who have or are considering plans relating to the use
and/or development of safe and secure nuclear energy believe that its devel-
opment will contribute to global energy security, while simultaneously reduc-
ing harmful air pollution and addressing the climate change challenge.
reaffirm our • commitment to work towards the reduction or, where appropriate,
the elimination of tariff and non-tariff barriers to environmental goods and ser-
vices through the WTO Doha negotiations, which will also help us to address
our shared energy security and climate goals,
welcome • concerted global action to promote renewable energy and the sup-
port of interested parties for initiatives and partnerships such as the Renew-
able Energy Policy Network for the 21st Century (REN21), the Renewable
Energy and Energy Efficiency Program (REEEP), the Global Bio-Energy
Partnership (GBEP) and the Mediterranean Renewable Energy Partnership
(MEDREP),
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27
take note of • national and international initiatives to go along with the further
development of a peaceful use of nuclear energy including the Global Nuclear
Energy Partnership (GNEP), the Russian initiative on multinational centres to
provide nuclear fuel cycle services, the Six party proposal of a standing
mechanism for reliable access to nuclear Fuel, the Japanese initiative on
IAEA standby arrangements system for the assurance of nuclear fuel supply,
and the German initiative for an enrichment centre under the exclusive control
of the IAEA as well as ongoing debate on other multilateral approaches to a
nuclear fuel cycle for a reliable fuel supply program, the work of the Interna-
tional Project on Innovative Nuclear Reactors and Fuel Cycles (INPRO), and
advanced nuclear energy research under the Generation IV International Fo-
rum (GIF).
77. We are committed to the paramount importance of safety, security and non prolif-
eration in using nuclear power. We reiterate common interest to continuously improve
nuclear safety, radiation protection, waste management, nuclear security and nuclear
liability in our respective countries, and we call upon all other states to do the same.
IAEA standards and recommendations form a good basis for the continuous improve-
ment of nuclear safety and security, as well as national nuclear regulatory systems. We
underline the need for effective national regulatory infrastructures, in particular the im-
portance for national regulatory body to have sufficient authority, independence, and
competence.
We remain committed to a robust regime for assuring nuclear non-proliferation as well
as a reliable safety and security system for nuclear materials, radioactive wastes and
nuclear facilities. We ensure full implementation of the international conventions and
treaties in force today which are a prerequisite for a high level of nuclear safety and se-
curity as well as a basis to achieve a peaceful and proliferation-resistant nuclear energy
use. The responsibility of all nations to support the work of the IAEA and all measures to
implement these conventions and treaties in these fields is emphasized.
78. Considering the above mentioned challenges, the G8 Nuclear Safety and Security
Group (NSSG) will continue in its work to consider nuclear safety and security issues.
79. In recognition of the Chernobyl accident in 1986 we reaffirm our commitments –
under former G7/G8 Summit declarations and memoranda of understanding and
through Chernobyl Shelter Fonds (CSF) and Nuclear Safety Account (NSA) pro-
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grammes – to undertake joint efforts with Ukraine to convert the damaged reactor unit
site into safe conditions.
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RESPONSIBILITY FOR RAW MATERIALS:
TRANSPARENCY AND SUSTAINABLE GROWTH
80. Raw materials produced by the extractive sector are a key factor for sustainable
growth in industrialised, emerging and developing economies. They are a particularly
valuable asset for sustaining growth and reducing poverty in many of the poorest coun-
tries in the world. It is in our common global interest that resource wealth be used re-
sponsibly so as to help reduce poverty, prevent conflicts and improve the sustainability
of resource production and supply. We firmly agree that significant and lasting progress
in this area can only be achieved on the basis of transparency and good governance.
Against this background, we support increased transparency with regard both to the
extractive sector and the subsequent trade and financial flows. In doing so, we will work
closely together with resource rich economies as well as important raw-material con-
suming emerging economies.
81. Free, transparent and open markets are fundamental to global growth, stability and
sustainable development. We therefore,
reaffirm our • strong commitment to the principles of free trade and to a further
strengthening of the multilateral trading system.
will work to • promote global applicability of and compliance with WTO rules, also
with regard to trade in primary and secondary mineral raw materials.
call on our • trading partners to refrain from restraints on trade and distortion of
competition in contravention of WTO rules and to observe market economy prin-
ciples.
82. Mineral resources have a great potential to contribute to poverty alleviation and sus-
tainable development. In some cases, nonetheless, extraction and processing of re-
sources are associated with misuse of revenues, environmental destruction, armed con-
flict and state fragility. We firmly agree on the need to further enhancing the contribution
of mineral resources to sustainable growth and will continue to support resource rich
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countries in their efforts to further expand their resource potential while promoting sus-
tainable development and good governance. To this end we will build capacity for good
governance of mineral resources consistent with social and environmental standards
and sound commercial practices by reducing barriers to investment and trade, through
the provision of financial, technical and capacity building support to developing coun-
tries for the mining, processing and trading of minerals. Based on sound life cycle
analyses, we will also encourage conservation, recycling and substitution of raw materi-
als, including rare metals, for sustainable growth.
83. Increased transparency in the extractive sector, is of crucial importance for achiev-
ing accountability, good governance and sustainable economic growth worldwide. We
welcome the proposal of the G8-Presidency to convene in 2007 a global conference on
transparency in the extractive sector with the participation of governments, business,
civil society and science from industrialised, emerging and developing economies.
84. The development of a consolidated set of principles and guidelines that apply to the
international mining sector in developing countries would help ensure that the sector
contributes to development while at the same time providing a clear and more predict-
able set of expectations for investors. It is important that all stakeholders be involved in
a process to build consensus around a set of recognised principles and guidelines in
the mining sector. In order to encourage such a consensus among key stakeholders we:
reaffirm our • support of the OECD Guidelines for Multinational Enterprises as
important international benchmark for corporate social responsibility,
will promote • wider understanding of and support for the following standards,
tools and best practices for the mining sector: the OECD Risk Awareness Tool
for Multinational Enterprises in Weak Governance Zones, the Voluntary Princi-
ples on Security and Human Rights and the International Finance Corporation
(IFC) Performance Standards,
encourage • active engagement of mining sector companies with the UN Global
Compact,
encourage • mining sector companies to undertake regular reporting using inter
alia the Global Reporting Initiative (GRI) framework, and welcome the adapta-
tion of this instrument for small and medium enterprises as well as to the spe-
cific needs of the mining sector,
Page 32
31
will support • the work of the UN Special Representative of the Secretary General
for Business and Human Rights.
85. Certification systems can be a suitable instrument in appropriate cases for increas-
ing transparency and good governance in the extraction and processing of mineral raw
materials and to reduce environmental impacts, support the compliance with minimum
social standards and resolutely counter illegal resource extraction. Therefore, we reaf-
firm our support for existing initiatives such as the Kimberley Process, Green Lead, the
Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development,
the International Council on Mining and Metals or the International Cyanide Manage-
ment Code, and encourage the adaptation of the respective principles of corporate so-
cial responsibility by those involved in the extraction and processing of mineral re-
sources,
86. The artisanal and small-scale mining sector provides important livelihoods to many
people in developing countries, and also contributes to global production of minerals.
We are concerned that these activities often are conducted in an informal manner and
do not meet minimum social and environmental standards which apply to the extractive
sector. In order to better support the development of sustainable livelihoods and positive
developmental impacts associated with artisanal and small-scale mineral production, we
encourage • collaborative partnerships between public, civil society and private
actors in the mining sector in order to develop systems for the transparent use
of funds for local development from mining companies and donors, consistent
with aid effectiveness principles,
support a • pilot study, in co-operation with the World Bank and its initiatives,
concerning the feasibility of a designed certification system for selected raw ma-
terials. In taking this initiative we will focus on the artisanal and small scale min-
ing sector and work in close partnership with governments from mineral re-
source rich developing countries as well as industry on the basis of their volun-
tary commitments. The pilot study shall strive on the basis of the existing princi-
ples and guidelines, in order to comply with internationally recognised minimum
standards by verifying the process of mineral resource extraction and trading.
We invite major emerging economies to work with us on this issue,
encourage • support for the Communities and Small-scale Mining (CASM) initia-
tive, housed at the World Bank, and for the multistakeholder Diamond Devel-
Page 33
32
opment Initiative (DDI), which emerged from the Kimberley Process to
strengthen the developmental impacts associated with artisanal diamond mining
in Africa,
support • efforts to develop techniques to limit pollution associated with artisanal
mining, such as education and training to encourage the use for example of
safer retorts for gold extraction.
87. We emphasise our determination to fight corruption and mismanagement of public
resources in both revenue raising and expenditures. As part of our ongoing efforts to
foster transparency with regard to resource-induced payment flows, we will continue to
support good governance and anti-corruption initiatives, such as the Extractive Industry
Transparency Initiative (EITI), and we
commit to • provide continuous assistance to strengthen EITI, as appropriate
through financial, technical and political means. Equally, we invite all stake-
holders to provide support for the implementation of the EITI,
call on • implementing countries and companies participating in EITI to implement
the Initiative and comply with their disclosure commitments. Equally, we en-
courage further countries to participate in EITI as appropriate,
welcome the • fact that an independent validation-process has been initiated to
monitor the national implementation measures. We encourage prompt applica-
tion and further development of the validation methodology,
welcome the • fact that a number of large banks have already signed the United
Nations Environmental Program (UNEP) Finance Initiative and the Equator
Principles. We call on further major banks to follow suit to adopt the Equator
Principles for project finance and implement the International Finance Corpora-
tion (IFC) standards, particularly those standards that relate to transparent
payments and contracts in the extractive sector, and finally
initiate, • within the framework of the 2007 global conference on transparency, a
dialogue with the major emerging economies to enlist the governments and es-
pecially the state-owned companies domiciled in these countries as participants
in EITI.
Page 34
33
FIGHT AGAINST CORRUPTION
88. Promoting the fight against corruption, both at the national and international levels,
remains one of the most important tasks of the G8. We are aware of their leadership
role in setting examples in the fight against corruption, and are taking concerted action
to live up to their commitments and responsibilities. We are committed to full implemen-
tation of their obligations under existing international agreements created to combat cor-
ruption, particularly those of the United Nations and the Organisation for Economic Co-
operation and Development (OECD). This includes the partners commitment to effective
investigation and prosecution of domestic and foreign bribery cases.
89. We will intensify their common efforts to effectively combat corruption worldwide.
This includes:
Supporting • the ratification of the UN Convention against Corruption (UNCAC)
by all countries;
Coordinating • closely to promote effective implementation of the UNCAC, par-
ticularly related to developing effective review mechanisms, strengthening inter-
national measures on asset recovery, and encouraging provision of technical
assistance;
Supporting • the work of the United Nations Office of Drugs and Crime (UNODC),
Interpol, the OECD and other international bodies to coordinate the implementa-
tion of UNCAC;
Ensuring that • developing countries can access and develop technical expertise
to help them recover illicitly-obtained assets;
Reaffirming a • shared commitment to effective monitoring through the implemen-
tation of a continuous, rigorous and permanent peer review mechanism under
the OECD Anti Bribery Convention, and strategic advancement of the Conven-
tion through continued engagement with non-party emerging economies;
Page 35
34
Supporting • International Financial Institutions efforts to combat corruption, in-
cluding the implementation of the World Banks Governance and Anti-
Corruption Strategy to increase assistance to countries to strengthen govern-
ance and reduce corruption;
Denying safe • havens through our national laws to individuals found guilty of cor-
ruption and the return of illicitly-acquired assets with high priority and develop-
ing additional measures to prevent such individuals from gaining access to the
fruits of their criminal activities in our financial systems;
Urging all • financial centers to implement the highest international standards of
transparency, exchange of information and the fight against money laundering;
Supporting • the efforts of the private sector in combating and preventing corrup-
tion, including through promoting greater accountability and transparency of
payments in key sectors;
Providing • assistance to countries that show willingness and ability to use funds
effectively;
Welcoming the • entry into force of the AU Convention on preventing and com-
bating corruption and encouraging all AU Countries to ratify and implement it.
90. We will continue to develop concrete strategies and best practices regarding spe-
cific aspects of combating corruption; for example, this will include implementing re-
gional G8 workshops on the recovery of illicitly-obtained assets. We will also provide
developing countries with enhanced capacity building assistance.
91. We are aware of the increasing role of investments from emerging countries and will
keep this topic on the agenda. Emerging countries are encouraged to meet the interna-
tional anticorruption standards and are invited to adhere to international anticorruption
instruments.
92. Building on the St. Petersburg Statement of 17 July 2006, we will focus on prevent-
ing corruption and of raising public awareness, in collaboration with civil society. We
agree that corruption should be combated most effectively by measures which reduce
the vulnerability of the public sector to corruption. We will work actively to promote ap-
propriate preventive measures, particularly in the government and administration, inter
Page 36
35
alia through transparent public procurement and will also provide support to other
States in working up best practices in this area.
93. We understand the critical relationship that exists between providing a stable, trans-
parent, and corruption-free business climate, and the ability to attract much needed for-
eign direct investment. Potential investors look at a range of issues in making invest-
ment location decisions, and a corruption-free environment is high among those deter-
minants.
Page 37
36
THE “HEILIGENDAMM PROCESS” WITH MAJOR EMERGING ECONOMIES
–
HIGH LEVEL DIALOGUE BETWEEN G8 MEMBER COUNTRIES
AND BRAZIL, CHINA, INDIA, MEXICO AND SOUTH AFRICA
94. At the Heiligendamm Summit we discussed with the leaders of Brazil, China, India,
Mexico and South Africa the major challenges that have arisen in the world economy.
Neither the G8 countries nor major emerging economies will be able to cope with these
challenges individually. Against the background of our respective responsibilities, com-
mon solutions need to be developed. Both the G8 countries and the major emerging
economies have the chance to define a new partnership responding to these world eco-
nomic challenges.
95. Building on our discussions, we decided to launch a new form of specific coopera-
tion with major emerging economies in order to discuss substantive topics in a compre-
hensive follow-up process with the aim of reaching tangible results in two years.
96. We will initiate a new form of a topic-driven Dialogue in a structured manner based
on this new partnership. We agreed to address four issues:
Promoting and • protecting innovation,
Enhancing • freedom of investment through an open investment environment in-
cluding strengthening corporate social responsibility principles,
Defining • common responsibilities for development with special regard to Africa,
Sharing • knowledge for improving energy efficiency and technology cooperation
with the aim to contribute to reducing CO
2
-emissions, consistent with the Glen-
eagles Dialogue on Climate Change, Clean Energy and Sustainable Develop-
ment, and the St. Petersburg Plan of Action on Global Energy Security,
Page 38
37
97. We ask the OECD to provide a platform for this new dialogue process, with the IEA
being the relevant organisation in the field of energy efficiency. The dialogue process
will begin in the second half of 2007. The G8 Summit in Japan in 2008 will receive an
interim report on the progress made and at the G8 Summit in Italy in 2009 a final report
on the outcomes of the Dialogue Process will be presented.

BRICs, emerging markets and

the world economy
Not just straw men
Jun 18th 2009
From The Economist print edition

The biggest emerging economies are

rebounding, even without recovery in
the West

EPA

THE inaugural summit of the BRICs—Brazil, Russia, India, China—

came and went in Yekaterinburg this week with more rhetoric than
substance. Although Russia’s president, Dmitry Medvedev, called it
“the epicentre of world politics”, this disparate quartet signally failed to
rival the Group of Eight industrial countries as a forum for economic
discussion.
But that should be no surprise: to realise how disparate they are,
consider that Russia and Brazil are big commodity exporters, whereas
China is a big commodity importer; China is a proponent of the Doha
trade round, India a sceptic; India and China vie for influence in the
Indian Ocean, Russia and China compete in Central Asia.

Instead, the really striking thing is that four countries first lumped
together as a group by the chief economist of Goldman Sachs chose to
convene at all, and in such a high-profile way. And that when they
met, they discussed topics such as reforming the IMF; their demand
for more say in global policy-making; and, in the case of China, Brazil
and Russia, a plan to switch some of their foreign-currency reserves
out of dollars and into IMF bonds.

All this reflects growing self-confidence. The largest emerging markets

are recovering fast and starting to think the recession may mark
another milestone in a worldwide shift of economic power away from
the West. Estimates for their national incomes in the first quarter were
better than expected. In the year to the end of March GDP rose by
around 6% in China and India. The two accounted for no less than half
the world’s increase in wireless-technology subscriptions in that
period. In Brazil gdp fell slightly in the first quarter but it is growing
faster than the Latin American average and most economists think
growth will return to its pre-crisis level as early as next year. In
contrast, output in most large industrial economies is still falling. The
exception in the BRICs is the host: dragged down by plunging oil
prices last year, Russia’s economy shrank by 9.5% in the first quarter,
the worst performance in the G20 after Japan.

The fortunes of the others mark a sharp rebound since the turn of the
year. Then, it seemed, the largest emerging markets faced being
overwhelmed along with everyone else. Chinese exports in January
were 18% lower than they had been a year earlier. Industrial growth
fell by two-thirds in November and December. And around 20m
migrant workers were wending their way back to their villages, jobless
after the collapse of construction and export booms in coastal cities.
The notion of “decoupling”—that emerging markets were no longer
mere moons revolving around planet West—suffered a severe setback.

So what should one make of the turnaround? Might there be

something to decoupling after all? Why are the BRICs recovering? And
what are the implications for the rest of the world?
Decoupling means not simply that emerging markets tend to grow
faster than rich industrial ones, although that is certainly true; it also
implies that to some extent the two groups dance to different tunes,
with emerging markets growing or shrinking autonomously, not just
under the influence of rich ones. A study last year by Ayhan Kose of
the IMF, Christopher Otrok of the University of Virginia and Eswar
Prasad of Cornell University gave some support to this idea.

You would expect less decoupling as a result of globalisation. The

cycles of output, consumption and investment should become more
closely aligned in countries engaged in world trade. Yet when the
authors looked at these indicators, they found something different.
The cycles of output, consumption and investment did indeed become
more closely aligned in rich countries. And the same thing happened in
emerging markets. But when the authors compared the two groups,
they found they were diverging. The business cycles of America and
Europe converged. The business cycles of India and China converged.
The business cycles of rich and emerging markets had decoupled.

When this study came out in mid-2008 the worldwide crash seemed to
render it instantly obsolete. Yet the sheer size of the meltdown may
temporarily have swamped deeper trends that are now reasserting
themselves as the initial shock recedes. In 2000 developing countries
accounted for 37% of world output (at purchasing power parities). Last
year their share rose to 45%. The share of the BRICs leapt from 16%
to 22%, a sharp rise in such a short period. Almost 60% of all the
increase in world output that occurred in 2000-08 happened in
developing countries; half of it took place in the BRICs alone (see
chart).
If this pattern of growth were resuming, it would be good news: nearly
half the world economy would be bouncing back. And there are one or
two signs that the benefits of growth in the BRICs are being felt
farther afield. Anecdotal evidence suggests “south-south” trade and
investment by richer emerging markets in poorer ones continued to
rise even as global capital and trade flows fell. One example of this is
the “land grab” in which China and Gulf countries are buying millions
of acres of farmland in Africa and South-East Asia. China overtook
America to become Brazil’s largest export market in March and April; it
is also now the largest exporter to India. China is using its $2 trillion of
foreign reserves to invest in other emerging markets: for example,
putting $10 billion into Petrobras, Brazil’s state-run oil company.

China’s appetite for raw materials to fuel resurgent growth probably

explains the 36% rise in industrial raw-material prices since the start
of this year, benefiting exporters of things like copper—though how
long this will last is an open question. If it comes from the boom in
Chinese investment spending, then the boom could continue. If China
is merely filling its stores temporarily after a period of destocking, then
prices could fall again.

But the resilience of China, India and Brazil cannot offset the dire state
of the rest of the world economy. While the three giants recover,
developing countries as a whole are mired in recession. The giants
seem to be decoupling not only from the West but from many of their
smaller emerging brethren, too.

A series of reports confirms how badly things are going there. A review
of ten poor countries by the Overseas Development Institute, a think-
tank in London, concludes that they were worse hit than anyone
expected, with sharp declines in remittances, employment and
revenues and widespread balance-of-payments problems. As the
study’s author, Dirk Willem te Velde, points out, the differences are
often striking. In some countries—Indonesia, Kenya, Bangladesh—
foreign direct investment has held up reasonably well; others—Ghana,
Nigeria and Zambia—are facing sharp declines. Cambodian textile
exports have been hit harder than Bangladeshi ones. But because
import demand, capital flows and the need for foreign workers
declined precipitously in the West, almost all developing countries are
suffering.

In its most recent assessment, the United Nations says at least 60

poor and emerging markets will this year suffer falls in income per
person. The UN’s forecasts for eastern Europe and sub-Saharan Africa
are especially dark. For eastern Europe, Russia and its neighbours, the
body predicts a fall in output of 5%. Arvind Subramanian, an
economist at the Peterson Institute for International Economics, a
think-tank in Washington, DC, argues that the recession in eastern
Europe sounds the death knell for one of the two main growth
strategies of the past 20 years—capital-account liberalisation (growth
through exports is the other). The east European countries threw their
financial sectors open to the world. In 11 of the region’s countries,
foreign banks account for over 60% of bank assets. The flood of
foreign-currency borrowing destabilised their economies and left them
vulnerable when Western banks reduced lending.

In Africa, the UN predicts, output will now fall by 0.9%. That might not
sound too bad but only two months ago the IMF was forecasting a rise
of 1.7% and at the start of the year the UN had projected a 4.8%
increase. To return to pre-crisis growth, says the African Development
Bank (AFDB), would require the continent to attract $50 billion of new
money this year. Africa is nowhere near those levels because world
capital flows are falling. The latest forecast by the Institute of
International Finance says total net flows will collapse from $890
billion in 2007 to just $141 billion this year.

The AFDB fears that “a growth crisis” may be turning into a

“development crisis”, leading to sharp increases in poverty and
malnutrition. By the end of 2009, says the UN, there will be between
105m and 143m more people in poverty than if growth had continued
at its pre-crisis levels (see article). The main exception is in smaller
East Asian countries, where industrial output is rebounding and GDP
growth is likely to resume in the second quarter.

At the moment, then, recovery in the BRICs is coinciding with

recession in the developing world as a whole. If this does not point to
any change in global economic conditions, what does it reflect?

Partly, that the BRICs depend less on exports than do many emerging
markets. In Brazil and India exports are less than 15% of GDP. China,
too, exports less than many people think. Though exports were 34%
of GDP in 2008, these included “processing exports”—goods imported
into China, processed and exported without much value having been
added. All three were thus less affected by the slowdown in world
trade than most.

The BRICs were cautious in liberalising their financial systems, so have

been less affected than, say, eastern Europe, by the West’s financial
heart attack. And their recoveries have been boosted by governments
which have dramatically loosened monetary policy and increased
government spending. But many other countries are relatively closed
to trade and finance. Smaller ones like Chile and Taiwan have had a
large fiscal stimulus. But few have done so well. Something more is
needed to explain the recovery of the giants. A plausible explanation is
size.

Size matters when world trade is falling because large economies have
millions of domestic consumers to turn to when foreign markets fail.
China is the best example. Small economies need trade to specialise,
but the pressure of selling into a big domestic market helps companies
in large economies remain competitive even without a lot of
competition from imports. Big economies also tend to be diversified.
India, for example, exports not just garments and cheap electronics—
characteristic of many countries with similar levels of income per head
—but ships, petrochemicals, steel and business services. Being
diversified means little when markets all fail at once. But it is a big
advantage when recovery begins since you are more likely to be in a
business in which demand is rising.

Size and variety may also help the economic stimulus programmes of
China, India and Brazil. In general, one of the commonest problems of
government reflation is that the benefits leak out beyond your borders
because the programme sucks in imports. Giant economies do not face
this problem so acutely because even when trade has been liberalised,
imports naturally tend to be a lower share of GDP.

The other challenge is to ensure that government stimulus

programmes are broadly based. This could be more difficult in small
economies which specialise in relatively fewer sectors. A handful of big
companies may be able to use political clout to grab the benefits of
spending for themselves. In principle, giant countries such as India or
China have more companies competing to manipulate the government
for a share of the spoils. That is speculation, but the fact is that the
stimulus programmes in the big emerging markets have been, mostly,
large and effective.

China’s stimulus package was the earliest and best-known example of

fiscal shock and awe. But it is only part of the story. The government
is using the state-owned banks to pump out loans at astonishing rates.
According to Josh Felman, of the IMF’s Asia research department, state
banks and others issued 5.5 trillion yuan ($800 billion) of new loans in
the first quarter—more than in the whole of 2008. This is producing a
spending splurge on steroids. Excluding SUVs, almost as many cars
are being sold in China as in America. In 2006 Americans bought twice
as many.

Brazil and India are following suit, albeit more modestly. Brazil
reduced reserve requirements and gave banks and its deposit-
insurance fund incentives to buy up the loan portfolios of smaller
banks. These measures injected 135 billion reais ($69 billion) into the
domestic credit markets, according to Otaviano Canuto of the World
Bank. Domestic credit rose sharply between September 2008 and
January 2009 and consumer confidence is rebounding.

The source of India’s resilience, argues Mr Subramanian, was

“goldilocks globalisation”: neither too dependent on foreign capital,
like eastern Europe, nor too reliant on foreign customers, like parts of
East Asia. Foreign capital dried up in the crisis, so India relied on
domestic savings, which amounted to almost 38% of GDP in the year
to March 2008. Companies thus turned for loans to India’s
unfashionable state banks, which hold almost 70% of bank assets,
rather than borrowing overseas or raising money on the stockmarket.

India’s growth was also shored up by government outlays, such as a

generous pay rise for state employees, the cancellation of small
farmers’ debts, and the expansion of its rural-workfare scheme.
Announced before the crisis struck, this spending was fortuitous. It left
the public finances deep in the red, even as it helped the government
to a decisive election victory. So far, this political triumph has boosted
confidence in India more than the budget deficit has dampened it.

State of triumph
The question is whether such splurges are efficient and how long can
they last. Consider China’s investment (see article). According to the
IMF’s Mr Felman, in early 2008 all the contribution of investment to
growth came from non-state-owned enterprises, mostly the private
sector; since December 2008, more than half has come from state-
owned enterprises. Something similar is happening in Brazil. Between
last September and this January credit from foreign-owned and
domestic private banks rose by 3%; credit from public banks rose by
14%. The beneficiaries seem to be large firms, where loans are
growing four times as quickly as at small ones.

It is not clear how far, in the long run, the BRICs will be affected by a
big rise in the size of the government and large state-owned firms. But
that rise is probably inevitable. China and, to a lesser extent, Brazil
and India, benefited hugely from America’s appetite for imports in
2000-08. That appetite has fallen and is likely to remain low for years,
as American consumers adjust their spending and savings habits. The
rise may also be difficult to reverse: the experience of the West has
been that the public sector expands relentlessly until it reaches
between 40% and 50% of GDP. But if the BRICs cannot export their
way out of recession, the expansion of government is the main
alternative to the slump being endured in those other big capital
exporters, Germany and Japan. It is part of the price China and others
are paying to clamber out of recession before everyone else.

THE WORLD ECONOMY

When fortune frowned

Oct 9th 2008
From The Economist print edition

The worst financial crisis since the

Depression is redrawing the
boundaries between government and
markets, says Zanny Minton Beddoes
(interviewed here). Will they end up in
the right place?
Illustration by Belle Mellor

AFTER the stockmarket crash of October 1929 it took over three years
for America’s government to launch a series of dramatic efforts to end
the Depression, starting with Roosevelt’s declaration of a four-day
bank holiday in March 1933. In-between, America saw the worst
economic collapse in its history. Thousands of banks failed, a
devastating deflation set in, output plunged by a third and
unemployment rose to 25%. The Depression wreaked enormous
damage across the globe, but most of all on America’s economic
psyche. In its aftermath the boundaries between government and
markets were redrawn.

During the past month, little more than a year after the financial storm
first struck in August 2007, America’s government made its most
dramatic interventions in financial markets since the 1930s. At the
time it was not even certain that the economy was in recession and
unemployment stood at 6.1%. In two tumultuous weeks the Federal
Reserve and the Treasury between them nationalised the country’s two
mortgage giants, Fannie Mae and Freddie Mac; took over AIG, the
world’s largest insurance company; in effect extended government
deposit insurance to $3.4 trillion in money-market funds; temporarily
banned short-selling in over 900 mostly financial stocks; and, most
dramatic of all, pledged to take up to $700 billion of toxic mortgage-
related assets on to its books. The Fed and the Treasury were
determined to prevent the kind of banking catastrophe that
precipitated the Depression. Shell-shocked lawmakers cavilled, but
Congress and the administration eventually agreed.
The landscape of American finance has been radically changed. The
independent investment bank—a quintessential Wall Street animal that
relied on high leverage and wholesale funding—is now all but extinct.
Lehman Brothers has gone bust; Bear Stearns and Merrill Lynch have
been swallowed by commercial banks; and Goldman Sachs and
Morgan Stanley have become commercial banks themselves. The
“shadow banking system”—the money-market funds, securities
dealers, hedge funds and the other non-bank financial institutions that
defined deregulated American finance—is metamorphosing at lightning
speed. And in little more than three weeks America’s government, all
told, expanded its gross liabilities by more than $1 trillion—almost
twice as much as the cost so far of the Iraq war.

Beyond that, few things are certain. In late September the turmoil
spread and intensified. Money markets seized up across the globe as
banks refused to lend to each other. Five European banks failed and
European governments fell over themselves to prop up their banking
systems with rescues and guarantees. As this special report went to
press, it was too soon to declare the crisis contained.

Anatomy of a collapse
That crisis has its roots in the biggest housing and credit bubble in
history. America’s house prices, on average, are down by almost a
fifth. Many analysts expect another 10% drop across the country,
which would bring the cumulative decline in nominal house prices close
to that during the Depression. Other countries may fare even worse.
In Britain, for instance, households are even more indebted than in
America, house prices rose faster and have so far fallen by less. On a
quarterly basis prices are now falling in at least half the 20 countries in
The Economist’s house-price index.

The credit losses on the mortgages that financed these houses and on
the pyramids of complicated debt products built on top of them are still
mounting. In its latest calculations the IMF reckons that worldwide
losses on debt originated in America (primarily related to mortgages)
will reach $1.4 trillion, up by almost half from its previous estimate of
$945 billion in April. So far some $760 billion has been written down
by the banks, insurance companies, hedge funds and others that own
the debt.

Globally, banks alone have reported just under $600 billion of credit-
related losses and have raised some $430 billion in new capital. It is
already clear that many more write-downs lie ahead. The demise of
the investment banks, with their far higher gearing, as well as
deleveraging among hedge funds and others in the shadow-banking
system will add to a global credit contraction of many trillions of
dollars. The IMF’s “base case” is that American and European banks
will shed some $10 trillion of assets, equivalent to 14.5% of their stock
of bank credit in 2009. In America overall credit growth will slow to
below 1%, down from a post-war annual average of 9%. That alone
could drag Western economies’ growth rates down by 1.5 percentage
points. Without government action along the lines of America’s $700
billion plan, the IMF reckons credit could shrink by 7.3% in America,
6.3% in Britain and 4.5% in the rest of Europe.

Much of the rich world is already in recession, partly because of tighter

credit and partly because of the surge in oil prices earlier this year.
Output is falling in Britain, France, Germany and Japan. Judging by the
pace of job losses and the weakness of consumer spending, America’s
economy is also shrinking.

The average downturn after recent banking crises in rich countries

lasted four years as banks retrenched and debt-laden households and
firms were forced to save more. This time firms are in relatively good
shape, but households, particularly in Britain and America, have piled
up unprecedented debts. And because the asset and credit bubbles
formed in many countries simultaneously, the hangover this time may
well be worse.

But history teaches an important lesson: that big banking crises are
ultimately solved by throwing in large dollops of public money, and
that early and decisive government action, whether to recapitalise
banks or take on troubled debts, can minimise the cost to the taxpayer
and the damage to the economy. For example, Sweden quickly took
over its failed banks after a property bust in the early 1990s and
recovered relatively fast. By contrast, Japan took a decade to recover
from a financial bust that ultimately cost its taxpayers a sum
equivalent to 24% of GDP.

All in all, America’s government has put some 7% of GDP on the line,
a vast amount of money but well below the 16% of GDP that the
average systemic banking crisis (if there is such a thing) ultimately
costs the public purse. Just how America’s proposed Troubled Asset
Relief Programme (TARP) will work is still unclear. The Treasury plans
to buy huge amounts of distressed debt using a reverse auction
process, where banks offer to sell at a price and the government buys
from the lowest price upwards. The complexities of thousands of
different mortgage-backed assets will make this hard. If direct bank
recapitalisation is still needed, the Treasury can do that too. The main
point is that America is prepared to act, and act decisively.

For the time being, that offers a reason for optimism. So, too, does the
relative strength of the biggest emerging markets, particularly China.
These economies are not as “decoupled” from the rich world’s travails
as they once seemed. Their stockmarkets have plunged and many
currencies have fallen sharply. Domestic demand in much of the
emerging world is slowing but not collapsing. The IMF expects
emerging economies, led by China, to grow by 6.9% in 2008 and 6.1%
in 2009. That will cushion the world economy but may not save it from
recession.

Another short-term fillip comes from the recent plunge in commodity

prices, particularly oil. During the first year of the financial crisis the
boom in commodities that had been building up for five years became
a headlong surge. In the year to July the price of oil almost doubled.
The Economist’s food-price index jumped by nearly 55% (see chart 1).
These enormous increases pushed up consumer prices across the
globe. In July average headline inflation was over 4% in rich countries
and almost 9% in emerging economies, far higher than central
bankers’ targets (see chart 2).
High and rising inflation coupled with financial weakness left central
bankers with perplexing and poisonous trade-offs. They could tighten
monetary policy to prevent higher inflation becoming entrenched (as
the European Central Bank did), or they could cut interest rates to
cushion financial weakness (as the Fed did). That dilemma is now
disappearing. Thanks to the sharp fall in commodity prices, headline
consumer prices seem to have peaked and the immediate inflation risk
has abated, particularly in weak and financially stressed rich
economies. If oil prices stay at today’s levels, headline consumer-price
inflation in America may fall below 1% by the middle of next year.
Rather than fretting about inflation, policymakers may soon be
worrying about deflation.

The trouble is that because of its large current-account deficit America

is heavily reliant on foreign funding. It has the advantage that the
dollar is the world’s reserve currency, and as the financial turmoil has
spread the dollar has strengthened. But today’s crisis is also testing
many of the foundations on which foreigners’ faith in the dollar is
based, such as limited government and stable capital markets. If
foreigners ever flee the dollar, America will face the twin nightmares
that haunt emerging countries in a financial collapse: simultaneous
banking and currency crises. America’s debts, unlike those in many
emerging economies, are denominated in its own currency, but a
collapse of the dollar would still be a catastrophe.

Tipping point
What will be the long-term effect of this mess on the global economy?
Predicting the consequences of an unfinished crisis is perilous. But it is
already clear that, even in the absence of a calamity, the direction of
globalisation will change. For the past two decades the growing
integration of the world economy has coincided with the intellectual
ascent of the Anglo-Saxon brand of free-market capitalism, with
America as its cheerleader. The freeing of trade and capital flows and
the deregulation of domestic industry and finance have both spurred
globalisation and come to symbolise it. Global integration, in large
part, has been about the triumph of markets over governments. That
process is now being reversed in three important ways.

First, Western finance will be re-regulated. At a minimum, the most

freewheeling areas of modern finance, such as the $55 trillion market
for credit derivatives, will be brought into the regulatory orbit. Rules
on capital will be overhauled to reduce leverage and enhance the
system’s resilience. America’s labyrinth of overlapping regulators will
be reordered. How much control will be imposed will depend less on
ideology (both of America’s presidential candidates have promised
reform) than on the severity of the economic downturn. The 1980s
savings-and-loan crisis amounted to a sizeable banking bust, but
because it did not result in an economic catastrophe, the regulatory
consequences were modest. The Depression, in contrast, not only
refashioned the structure of American finance but brought regulation
to whole swathes of the economy.

That leads to the second point: the balance between state and market
is changing in areas other than finance. For many countries a more
momentous shock over the past couple of years has been the soaring
price of commodities, which politicians have also blamed on financial
speculation. The food-price spike in late 2007 and early 2008 caused
riots in some 30 countries. In response, governments across the
emerging world extended their reach, increasing subsidies, fixing
prices, banning exports of key commodities and, in India’s case,
restricting futures trading. Concern about food security, particularly in
India and China, was one of the main reasons why the Doha round of
trade negotiations collapsed this summer.

Third, America is losing economic clout and intellectual authority. Just

as emerging economies are shaping the direction of global trade, so
they will increasingly shape the future of finance. That is particularly
true of capital-rich creditor countries such as China. Deleveraging in
Western economies will be less painful if savings-rich Asian countries
and oil-exporters inject more capital. Influence will increase along with
economic heft. China’s vice-premier, Wang Qishan, reportedly told his
American counterparts at a recent Sino-American summit that “the
teachers now have some problems.”

The enduring attraction of markets

The big question is what lessons the emerging students—and the
disgraced teacher—should learn from recent events. How far should
the balance between governments and markets shift? This special
report will argue that although some rebalancing is needed,
particularly in financial regulation, where innovation outpaced a
sclerotic supervisory regime, it would be a mistake to blame today’s
mess only, or even mainly, on modern finance and “free-market
fundamentalism”. Speculative excesses existed centuries before
securitisation was invented, and governments bear direct responsibility
for some of today’s troubles. Misguided subsidies, on everything from
biofuels to mortgage interest, have distorted markets. Loose monetary
policy helped to inflate a global credit bubble. Provocative as it may
sound in today’s febrile and dangerous climate, freer and more flexible
markets will still do more for the world economy than the heavy hand
of government.
As an IMF note to the G-20 leaders gathered at the recent London summit put it, "Growth
also plunged across a broad swath of emerging economies. Against this backdrop, global
activity is expected to contract in 2009 for the first time in 60 years."

In 1998, the Asian financial crisis left a lasting mark on politics in Southeast Asia. The
Suharto regime fell in Indonesia and, arguably, ongoing turmoil in Malaysia and Thailand
can be traced to the impact of '98.

However, this time around, the region is expected to come through the current recession
relatively unscathed, in comparison with a decade ago, and in comparison with Eastern
Europe, another market-oriented emerging-economy locus.

The latter region has seen a number of governments fall already, amid concerns that the
bailout requirements for shoring up former communist economies might prompt a
"thanks but no thanks" response from Western Europe.

However, the idea that Southeast Asia will emerge without at least some political scar
tissue is misleading. Recent protests in Thailand have their origins in a color-coded
political rift whose history precedes the economic slump. However, with a government
unable to act or function effectively, it is clear that the downturn presents Thaksin's Red
Shirts with an ideal opportunity to replicate the previous success of their Yellow Shirt
rivals, by undermining a government through street violence.

At this stage, however, political casualties of the economic crisis have mostly been seen
in Eastern Europe. Latvian Ivars Godmanis' government was forced to resign in February
when wage reductions of 15 percent in public services resulted in major riots. In the
Ukraine, demonstrations occur almost daily as the country teeters on the brink of
collapse. After Ukraine's government failed to agree on a budget, the IMF has postponed
payment of the second tranche of a $16.4 billion loan.

Similarly, efforts to impose austerity cutbacks demanded by the IMF forced Hungarian
premier Ferenc Gyurcsany to quit in March. Four days later, Czech Prime Minister Mirek
Topolanek, who was supposed to hold the presidency of the EU Council until mid 2009,
along with his government, lost a vote of no-confidence, leaving the Czech Republic and
the EU without a leader.

Ironically enough, Singapore, Southeast Asia's bastion of stability, might be most

vulnerable to real change in that region. While Thailand might sway to and fro between
military coups, installed puppets and street protests, the reality is that such dramas are
nothing new in Siam.

Any move away from the Peoples Action Party (PAP) domination in Singapore, however,
would amount to something novel. Singapore's GDP could contract by as much as 8
percent this year. As one of Asia's most open economies, where exports of goods and
services last year accounted for around 145 percent of GDP, the city-state has been
slammed by the collapse in global trade.
Prime Minister Lee Hsien Loong may call an early election, to get the best result possible
in case economic pain leads to a bigger backlash, further down the line, against his PAP.
More generally, should the Singapore model (authoritarian politics coupled with
economic prosperity) unravel, it could have implications for other like-minded regimes.

Vietnam, like Singapore, might represent another case for early warning. The ruling
Communist Party has based its legitimacy on market reforms and high growth, but this
could be jeopardized. Already, hardliners in the Hanoi politburo are dismayed that too
much opening-up has compromised the one-party regime, allowing the seeds of dissent to
grow.

Indonesia has just had its third national elections since the 1998 economic collapse saw
autocracy routed and an effective democracy take hold. While final results are not yet
crystal clear, and a presidential poll awaits in July, it appears that the crisis has prompted
an increased pragmatism from candidates and voters alike, with all parties having to
chase votes based on bread-and-butter issues, shifting even Islamist parties such as the
PKS (Islamic Justice Party) closer to the center, for now at least.

The Philippines will enter its own electoral cycle in 2009-10, with the usual freewheeling
no-holds-barred oligarchies dominant. However, remittances, equal to around 10 percent
of GDP, will likely fall drastically, as emigrants struggle to keep jobs abroad in a global
downturn. Manila's parlous public finances and fragile economy will not be able to meet
any shortfall, leaving the country more prone than ever to volatility.

Similarly, large-scale layoffs in Western European countries have hit Eastern European
guest and migrant workers . Remittances account for 17 percent of Bosnia-Herzegovina's
(BiH) GDP and, with workers now pushed into returning home, the socio-political
pressure will increase in countries such as BiH and Macedonia, where unemployment is
now at 34 percent.

Simon Roughneen is a WPR contributor currently based in southeast Asia. Diana

Ionescu is a post-graduate economics student at the Vienna University of Economics and
Business, writing her thesis on SWFs
The term Emerging markets is used to describe a nation's social or business activity in
the process of rapid growth and industrialization. Currently, there are approximately 28
emerging markets in the world, with the economies of India and China considered to be
the largest.[1] According to The Economist many people find the term dated, but a new
term has yet to gain much traction.[2]

Contents
[hide]

• 1 Terminology
• 2 FTSE emerging markets list
• 3 MSCI list
• 4 See also
• 5 References
• 6 Sources

• 7 External links

[edit] Terminology
Originally brought into fashion in the 1980s by then World Bank economist Antoine van
Agtmael,[3] the term is sometimes loosely used as a replacement for emerging economies,
but really signifies a business phenomenon that is not fully described by or constrained to
geography or economic strength; such countries are considered to be in a transitional
phase between developing and developed status. Examples of emerging markets include
Argentina, Brazil [4], Chile, China,[5], Colombia, India, Mexico, Peru, much of Southeast
Asia, countries in Eastern Europe and in the Middle East, and parts of Africa and Latin
America. Emphasizing the fluid nature of the category, political scientist Ian Bremmer
defines an emerging market as "a country where politics matters at least as much as
economics to the markets."[6]

The research on emerging markets is diffused within management literature. While

researchers including C. K. Prahalad, George Haley, Hernando de Soto, Usha Haley, and
several professors from Harvard Business School and Yale School of Management have
described activity in countries such as India and China, how a market emerges is little
understood.

In the 2008 Emerging Economy Report [7] the Center for Knowledge Societies defines
Emerging Economies as those "regions of the world that are experiencing rapid
informationalization under conditions of limited or partial industrialization." It appears
that emerging markets lie at the intersection of non-traditional user behavior, the rise of
new user groups and community adoption of products and services, and innovations in
product technologies and platforms.
The term "rapidly developing economies" is now being used to denote emerging markets
such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.

In recent years, new terms have emerged to describe the largest developing countries
such as BRIC and BRIMC that stand for Brazil, China, India, Mexico and Russia. These
countries do not share any common agenda, but some experts believe that they are
enjoying an increasing role in the world economy and on political platforms.

A large number of research works are in progress at leading universities and business
schools to study and understand various aspects of Emerging Markets.

It is difficult to make an exact list of emerging (or developed) markets; the best guides
tend to be investment information sources like ISI Emerging Markets and The Economist
or market index makers (such as Morgan Stanley Capital International). These sources
are well-informed, but the nature of investment information sources leads to two potential
problems. One is an element of historicity; markets may be maintained in an index for
continuity, even if the countries have since developed past the emerging market phase.
Possible examples of this are Israel[8], South Korea[9], and Taiwan. A second is the
simplification inherent in making an index; small countries, or countries with limited
market liquidity are often not considered, with their larger neighbours considered an
appropriate stand-in.

The Big Emerging Market (BEM) economies are Brazil, China, Egypt, India, Indonesia,
Mexico, Philippines, Poland, Russia, South Africa, South Korea and Turkey.[10]

Newly industrialized countries are emerging markets whose economies have not yet
reached first world status but have, in a macroeconomic sense, outpaced their developing
counterparts.

[edit] FTSE emerging markets list

The FTSE Group distinguishes between Advanced and Secondary Emerging Markets on
the basis of their national income and the development of their market infrastructure. The
Advanced Emerging Markets are classified as such because they are Upper Middle
Income GNI countries with advanced market infrastructures or High Income GNI
countries with lesser developed market infrastructures. [11][12]

The Advanced Emerging Markets are: Brazil, Hungary, Mexico, Poland, South
Africa, Taiwan[13].

The Secondary Emerging Markets are some Upper Middle, Lower Middle and Low
Income GNI countries with reasonable market infrastructures and significant size and
some Upper Middle Income GNI countries with lesser developed market infrastructures.
The Secondary Emerging Markets are: Argentina[14], Chile, China, Colombia[15],
Egypt, India, Indonesia, Malaysia, Morocco, Peru, Philippines, Russia, Thailand,
Turkey.

[edit] MSCI list

As of April 2009, MSCI Barra classified the following 22 countries as emerging markets:
[16]

• Argentina
• Brazil
• Chile
• China
• Colombia
• Czech Republic
• Egypt
• Hungary
• India
• Indonesia
• Malaysia
• Mexico
• Morocco
• Peru
• Philippines
• Poland
• Russia
• South Africa
• South Korea
• Taiwan
• Thailand
• Turkey

The list tracked by The Economist is the same, except with Hong Kong, Singapore and
Saudi Arabia included (MSCI classifies the first two as Developed Markets)
As mentioned in a previous post 28/1/2008 the world is changing and the new century
looks like it will belong to the emerging economies and perhaps many countries that had
not been thought of.

Pricewaterhouse Coopers LLP explored this in a report, entitled “The World in 2050:
Beyond the BRICs (Brazil, Russia, India and China): a broader look at the emerging
market growth prospects. This interesting analysis uses current data to examine the 17
largest economies and the 13 emerging economies and sets projections for 2050.

It supplants the current G7 ( US, Japan, Italy, UK, France, Canada, Germany) with a
group of emerging country E7 (which includes China, India, Brazil, Mexico, Russia, and
Turkey) projecting that the emerging economies will overtake them by 2050 by 50
percent.

In fact, China is seen to surpass the US by 2025, while India is seen to reach this level of
growth by 2050. As mentioned in a recent post, China is already moving away from low-
end manufacturing which is going offshore to places like Vietnam, Bangladesh and the
Philippines, which interestingly form part of the top ten next wave of emerging nations.
PwC projects that Vietnam will grow to 70 percent of the UK economy by 2050.

China surpassed the US last year to become the second largest exporter in the world
behind Germany. PwC projects that by 2050 Brazil’s economy could be larger than
Japan’s, and the Turkish economy be as large as Italy’s economy. Part of the reason put
forward is the opportunity for increased internal investment and growth in wealth leading
to growth in domestic consumption.

Another factor for the decline in western nations economic prospects is also linked to the
decline in working populations or the effect of an ageing society. The replacement rate in
countries like Italy and France are low and there are already some signs of economic
pressure from the demands placed by the needs of pensioners. This element is also seen
as a risk factor for development of countries like China who have mandated fertility
policies. There seems to be no change from the one-child policy in the near future but this
may change at some time.

The changes will see movement from low-skilled to more high tech industries in
countries like China, while presently underdeveloped nations improve their skill base to
move into low-end manufacturing. This will increase living standards and the capacity
for increases in domestic consumption.

Where does this leave the current crop of OECD countries? The competition from the
emerging economies will force OECD countries to move into niche areas of specialised
technologies of high value or concentrate on commodities where possible and will require
the retraining of their workforce to meet these specialisations.
The change in world position for China is demonstrated in an article from the Xinhua
agency today reporting that the “World Bank seeks to work together with China as strong
partners in Africa to tackle key challenges standing on the way to Africa’s sustained
growth.” The article posits that from China holds huge promise for Africa, not just in
terms of the enormous financial investment that it brings into energy, transportation,
water and other related sectors, but also the technical expertise that comes with its own
development of such world class infrastructure network. China’s example of
development offers Africa scope for improvements in economic development especially
if the problems of politics are able to be overcome. Many countries in Africa have the
potential for growth and Nigeria is one of the list of emerging nations mentioned in the
PwC report.

The world is changing, and sooner than we think. How our own countries fare will
depend on understanding these global movements and being able to find areas of
competitive advantage for our own economic growth. It will have to encompass
demographic, financial as well as technological change. In the face of the challenges of
global warming there is a lot to be done but also there are many areas of opportunity